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Diamond Dollars: The Economics of Winning in Baseball Hardcover – March 5, 2007
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From the Publisher
"Diamond Dollars provides an insightful look at the business of baseball--at the free agent market, teams' scouting and player development systems, and how clubs market their brands. The book mixes Vince's business acumen as a top executive at a Fortune 50 company with his passion for the national pastime." --Mark Attanasio, Chairman and Principal Owner, Milwaukee Brewers
"Vince Gennaro shows a profound understanding of the economics of a team's baseball decisions. His analyses of a team's win-revenue relationship, the player development system and player valuation, make for a remarkably innovative examination of the baseball front office model that's just as informative for a baseball executive as for a fan." --Chris Antonetti, Assistant General Manager, Cleveland Indians
"Diamond Dollars offers up exciting and stimulating new ideas about the business of baseball. It provides a set of metrics for decisions that have typically been a "gut feeling" for many organizations. I think teams should make this required reading for everyone in their organizations." --Jim Beattie, former Executive VP and General Manager, Baltimore Orioles and Montreal Expos
"Vince Gennaro has written the best book I've read on the business of baseball. It serves as both a "how-to manual" for baseball owners and a tour guide for fans who scratch their heads at the things their teams do. It should find plenty of readers in both camps." --Dave Studenmund, Editor, The Hardball Times Annual
About the Author
Following a highly successful twenty-year career at Pepsico, where he was president of a billion-dollar division, Vince Gennaro is currently a consultant to Major League Baseball teams. His innovative analytical work on the business and economics of baseball has been featured in the New York Times and he has written for The Hardball Times, Boston Baseball, the Maple Street Press 2006 Red Sox Annual, and the Baseball Research Journal. He recently authored his first book, Field of Dreamers: Tales From Baseball Fantasy Camp. A member for the Society for American Baseball Research, Gennaro holds a master’s degree from the University of Chicago. He resides in Purchase, New York.
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Regarding baseball, it provides an excellent basic analysis of the challenges and opportunities faced by major league teams of all sizes. I would have liked to have seen more detailed rankings of all teams rather than focusing on a few at the top and bottom end of the value scales but I'll take what I can get. As far as I know this book provides the best accessible analysis of the economics of baseball so while I can see multiple areas where it could be improved (details of more teams, more insight via appendices into the valuation assumptions made at various points), it's still well worth reading.
As a side point, I think the real value of the book may be its applicability to teaching some business fundamentals. It provides a very readable introduction to a variety of valuation concepts that are not always easy to communicate. I could easily see this being a valuable addition to business schools reading lists.
A.) Winning teams draw more interest/make more money--especially if they are playoff contenders,
B.) Each player's performance increases/decreases a team's chance of winning to a certain degree. Finding out exactly how much a player impacts a team will help to determine if the player is worth signing/keeping.
C.) Players built up from the minors are much cheaper than free agents. Thus, each team should focus on developing their minor league/player development systems.
D.) There is a certain balance of free-agent/high-priced players vs. cheap, home-grown types that is optimal for winning.
While I don't disagree, there's nothing particularly innovative about the author's approach. The writing was rather business-textbook-like and not terribly engaging. I prefer BP's "Baseball Between the Numbers" for a primer on the economic concerns of baseball.
If you want to have a good understanding of the material in this book, then I would recommend that you have a decent understanding of using basic fundamental analysis to value a business. Finally, I would highly recommend understanding models that are produced by regression. There is tons of data in this book, and the researcher used a lot of regression models. He went back 30 years, and if a team was not around for 30 years, then he used all the data they had since they started playing Baseball. The book is broken into 4 parts.
Discusses how wins effect the future attendance of a team. He uses the term "Win/Curve", and concluded that in general, attendance is maximized when a team wins around 92 or 93 games. The latter is most likely caused by a team in a Pennant Race. Also, the farther a team goes into the Playoffs, the more season tickets that will be sold the following season. Finally, there are different levels of revenue generated from the "Win/Curve" that are broken into different revenue categories, multiple revenue streams and multiple revenue layers. Revenue streams are the daily revenue such as cash from attendance, concessions, local broadcasts and sponsorships. On the other hand, multiple reason layers are broken into 4 categories (1) Win Dollars - represents the change in revenue from daily revenue sources when a team wins over a period of years. (2) Postseason Dollars - Teams do not make money for just making the Postseason because the revenue from daily operations is enough to cover the bonus salaries for the players. Teams make their money by increasing season ticket holders over the next 3 to 5 years. (3)World Championship Dollars are created when a team wins the World Series. More fans by season tickets just to have access to Playoff tickets. When the WhiteSoxs wonthe 2005 WS their seson ticket revenue jumped 12.5%.
The 2nd Part of Diamond Dollars focuses on valuing players. One of the techniques used to value a player is broken down in the following manner. Lets use Vlad. His stats are used to figure out how many additional wins he helped produce. Then, the additional/marginal wins are plugged in to win the marginal revenue he produced. If the amount of marginal wins he helped produce has no effect on the playoffs, then its over, but if his marginal wins helped make the playoffs, then postseason and possibly world series revenue is added.
The 3rd Part discusses the importance of a good Farm System. An MLB team would be hard pressed to define a more important leverage point of its on field and business success than its scouting and player development system. As a result, noting a team does will have a greater impact on their cost structure than a success or failure of their farm systems ability to feed talent to the Major League Team. Therefore, the team with home grown talent (aka Twins, Marlins, Tampa Bay), and does not have to waste money on high priced free agents just a few free agents to fill in missing pieces can maximize their revenue. As a result, a team that can make the Playoffs or World Series under the latter situation will make a higher net profit than a team that chooses to build their team around high priced free agents.
Part 4 discusses the economic value of building a team brand. Some teams such as the Cubs, Yankees, and Cardinals, realize a revenue cushion in form of loyalty of their fans in years when the team is less than competitive. AS a result of the latter, teams with strong brands are ore likely to spend to win because their revues sag less in down years. Also, there is a theory of a 3 phase program to build a brand (1) BUILD CREDITABILITY though ownership showing a commitment to win, team never quits, Front Office acquires several big name free agents (2) COMPELLING ENTERTAINMENT VALUE - ownership demonstrates their commitment to win in part 1 by adding more big name players, the farm system begins to produce a few quality players to go with their free agents, and as a result fans begin to feel optimism. Also, entertainment value can be increased by a new ball park, or add attractions to the park for families (3) CREATING AN EMOTIONAL BOND WITH FANS Fans believe that the owners are want to win as much they do, team maintains continuity with key players, team has several "likable" players, Ballpark has feel of a baseball theme park, team owns their own broadcast network so they not only have control of how information is presented they have the ability to bring back legends to call the game
Finally, the book has some fun, and discusses some unique topics such as the YES Network, and the effect it has had on every MLB team to broadcast their games. There is a chapter devoted to Babe Ruth, and how he would be valued in today's game. The author even pokes holes in the "Moneyball" philosophy of Billy Beane. First, he believes Beane's on ego hurt him in that he let the cat out of the bag too soon by writing "Moneyball", and basically rubbing his success in everyone's face. Another flaw is that Beane does not give enough credit to the players on the team that are not homegrown, or in other words the homegrown kids alone would not have been able to win solely on their own. Finally, Beane lets go of his arbitration players too soon. Yeah, he gets more value back this way, but why give up a Hudson, Zito, and Blanton when they have still have a chance to go far in the playoffs. Is an extra draft pick really enough of a reason to give up a chance at winning the World Series.
Diamond Dollars is a phenomenal book, and I would recommend it to anyone who wants to understand theories about the Front Office. Its nice to see well thought out theories backed up with real data. However, this not a book to read on the beach or for leisure. Each section is very similar to reading an article in an academic journal. Therefore, I would recommend to read about 20 to 30 minutes at a time so your brain can absorb what you just read. You can read it in one sitting, but it would be a waste.